Borrowing for business : 2. Types of funding available

In the earlier post, we looked at the basic understanding of getting loans. In this post, let us see from where can get loans and the various types of funding available.

Normally, the loans are given by Banks, Financial Institutions and NBFCs

Again the facilities that can be availed are categorized into Fund based and Non-fund based.

What type of funding that we can get from them? The funding are classified in terms of 

• Duration: Short Term funding and Long Term funding.
• Security : Secured loan and Unsecured loan 

Short term funding (loan)

1. Working Capital loan
• As the name suggests, this loan is to fund your working capital requirement. The lender will fund you the 1 or 2 or 3 months of your net working capital, depending on your business nature. This is to tide over your collection time to pay your expenses and creditors.
• This will be a short term loan for 12 months and can be renewed with same limit or higher limit.
• This loan will  be based on your debtors and stock balances.
2. Flexi business loan
• This loan will give a limit to draw to the extent required.
• Normally, these type of loans are taken for seasonal businesses (eg. agro based) or gets irregular orders.
• Only the utilized amount will be charged.

Long term funding (loan)

1. Term Loan
• Normally for longer projects or for buying machines or building a facility.
• Term loan will be for more than a year (infr projects will have much more longer tenure)
• The term loan sanction will take more time, as there will more diligence exercised by the lender.
• These loans will be secured mostly against the purpose for which it is taken.
• There will be a repayment schedule agreed.
2. Asset financing (lease finance and asset finance)
• Banks and NBFC does this.
• SIDBI gives at better rate under SMILE Equipment Plan (SEP)

The above are generic and there are other ways of getting loan like personal business loan, which is unsecured and upto 25 lakh like a term loan. This will carry an interest around 14%-18% depending on your credit rating.

For all the above loans, the business and the promoters shall maintain a good credit rating in Credit Information Bureau India Limited (CIBIL). This calls for a separate posting on how maintaining helps in getting loans, how to maintain good score etc.,

This posting is more for awareness of business community. The requirement, nature of funding has to be assessed case by case. Please consult your financial consultant.

Any questions, please ask in the comments. I will answer them.